Foreign Founders Should Look Beyond Silicon Valley

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Silicon Valley generally believes it’s the ideal place to be for all software developers.

Against the backdrop of the Valley’s well documented success, Paul Graham wrote an essay calling for the US government to let the 95% of great software developers not in Silicon Valley join the 5% who already are.

This immigration discussion has a tendency to become patronizing, to be about “allowing” some people in and “keeping” others out. In my experience from building Skype’s 10 offices across 16 timezones, clearly top tech talent needs to be chased and courted, not just “allowed” to move anywhere. So it was refreshing to read Graham nailing this nuance: “… this whole discussion has taken something for granted: that if we let more great programmers into the US, they’ll want to come.”

With an increasingly global map of startup hubs, Silicon Valley needs to look not just at the factors bringing talent in, but also the negative factors diverting talent elsewhere. When a hub’s defining trait is optimism, is any time spent thinking of the darker side of foreign founders’ life in Silicon Valley?

Reasons abound for international entrepreneurs and top technical talent to stay away from Silicon Valley and build their startup somewhere else.

Getting Off the Boat

While the visa issues raised by Paul Graham and many other tech luminaries are real, there is more nuance to them than just raising quotas.

What is much harder to describe is the sense of suspicion still ahead. When you’re trying to get to the Land of the Free with an explanation about creating products and jobs, be prepared for questioning looks all the way through your visa interviews, from the border guard and that other, frequent and unexplained secondary inspection borderguard. It doesn’t feel like the people guarding the Valley know that inside the Valley “entrepreneur” is not just a French word for someone unemployed.

There is no question that as a guest immigrants must always follow the rules of the house. By being careful, patient, and polite for half a year an incoming tech founder can eventually make it, jumping through bureaucratic hoops and mailing stacks of paper around (“because the electronic filing is less reliable”). Yet, the uncertainty, the sense of being at the mercy of an anonymous official never leaves. This alone can be enough for the US to start losing against some other nation states that are working hard to make it more than easy, but actually pleasant for founders to come.

Sometimes the stars align. If you’ve got $50k to invest personally and another tenth of that to share with lawyers, co-founders from your home country who have majority control of your new corporation, and/or all your passports happen to be on the friendly list (which does not include the top engineering talent sources, China & India) your fresh E2 visa might eventually bring a rare smile on the border guard’s face. But if you’re a 21-year-old geek looking to build… a lot could be built with $55k and 6 months anywhere in the software world.

That’s the thing about being a courteous guest: sometimes when you feel belittled by the host for a while, maybe it is just a hint to go back home or visit somewhere more welcoming?

Burning Money For The Roof Above Your Head

If you really haven’t followed the dimensions of what renting (let alone buying) a place around Silicon Valley means today, take an hour to think along with Kim-Mai Cutler’s epic reporting on the systemic constraints behind San Francisco Bay Area housing.

As a result, every day brings new stories of climbing through an open window to gain an edge at an open house; competitors for an overpriced two-bedroom bragging loudly about their Ivy League educations or a bunk bed in a hacker house costing $1500 per month. The situation is actually insane for the financial and emotional toll on entrepreneurs who are in Silicon Valley to build software, not apartments.

There is also a less obvious time bomb for founders that is haunting me: how will all this play out for early stage funding sources. As Balaji Srinivasan of a16z has observed, roughly 50%+ of the capital allocated for early stage tech investments is actually flowing into Bay Area real estate, directly through office rentals and indirectly via home rentals as a primary driver of skyrocketing salaries. In a weird way early stage investors are shorting the booming real estate for themselves, i.e. as the rental prices rise they get even less of intended return on the tech investment they originally made (= less tech done per $).

To buy a middle class house in the Bay Area you need to have already won with your startup. And frankly, you need to be winning something already to rent.

Hiring Is Hot In Hell

It’s only natural that people in the Valley expect to make enough to be able to live here. Especially for an early stage software startup, the cost of people shadows everything else in their budget. For international founders, the mandatory intro on the expected burn is Danielle Morrill‘s Medium post.

Bottom line: a million dollars puts a team of five people to work for a year. Fine on Facebook or Google margins, I guess, but I’ll leave it for you to calculate how many engineers you could convince to join your startup on TopTal or back home with a cool million in cash on the table.

It’s not just the cost. Being the most vibrant and exciting startup ecosystem in the world has changed the cultural norms around corporate tenure. In most of the scene it seems to be OK to jump at every opportunity. To “get on the next rocket ship”, not when you’re proud of your contributions to the previous one (or when it fails) – but rather on the metronome beat of 1 year option vesting cliffs. Arguably it’s good for employees in some ways (though beware “Silicon Valley Syndrome”); inarguably bad for founders.

So Silicon Valley is an extraordinarily competitive and expensive place to hire; the risks are high for you as a founder – and yet you have to hire faster than you ever have. Candidates are gone if you don’t catch them in a day. A data scientist (you know, “a statistician living in Silicon Valley“) candidate told me bluntly she would never spend three days of her life on our test task, if she could walk through 7 hours of interviews at LinkedIn or Google and have a great job by the evening.

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The State Is Not a Country

Most countries have a pretty clear threshold for how long you have to be physically present to become a subject to different laws and regulations. Take taxes for example. In Silicon Valley, beware: the American presence test rules that might be boolean in other places (“have you been here for more than 180 days this year?”) are instead continuous, rolling tests across multiple years with different state and federal standards.

For instance I’ve been in a situation where the United States did not consider me a tax resident yet, but California happily claimed their share of my past global income. If your country has a double-taxation avoidance agreement with the US, then the Republic of California proudly doesn’t care – and couldn’t even sign an international treaty if they wanted to, because it’s not a country. All of this is rarely fun to figure out, especially if you’d actually like to spend time building a company. And you’ll get used to all this in the US, and such friction is immediately measurable in a hefty lawyer bill, too.

My other pet peeve (maybe because I’m a digitally pampered citizen of Estonia), is the bureaucracy one has to live with in Silicon Valley just to be a good citizen or an operating business. You will actually use physical checks for payment.

My driver’s licence is still being processed by the DMV over a year after passing my exams, because as I was told in a voicemail, “the fax came out black and you should try to find another copy machine and send us a proper fax”.

Even though I just mentioned three technological wonders much of the world considers a property of the 80s, it’s less amusing when you realize this is happening within a 30 minute drive from the home of the world’s best consumer software. I posed this question in a speech at Stanford a few years ago: what would the DMV look like if someone from Apple designed the retail experience? Why are these things from different planets?

On a practical level as an entrepreneur, you have to be acutely aware of more than the laws and modus operandi of the country, but those of your state, county, town and sometimes even your zip code. If you have to be in the US for some reason, because of clients or partners, don’t default to the Valley presuming it’s the most innovation friendly locale.

You’re unlikely to find someone ever complaining about the weather in Silicon Valley (except for drought), but recent immigrants often point out the monofunctional focus on the tech industry. From healthcare (to avoid going into a separate 5-page rant, just look at these numbers and know it is true, it will impact you and you will be seeing $20k bills for checking in on your headache if you’re not careful) to education – do not presume global competitiveness from any feature of society in Silicon Valley, save those which are directly related to building great tech companies.

For some this might be perceived as a “lazy European” thing, for others the personal experience of actually burning out on 100 hour weeks a few startup cycles ago — in every entrepreneurial grind there’s the yearning for great architecture, theatres, music or a classical art museum to find inspiration and balance in life.

It is true that San Francisco can offer a colorful lifestyle for those with the means (which is part of the reason it has drawn a new generation of startup people from the orchards of South Bay up to the city) but it’s no London, New York, Hong Kong or Paris when comparing many of the features these places are known for. I know, when starting up a new venture, there has to be a singular focus. But be honest with yourself about what you expect from the lifestyle for you and your family in five years too.

Yeah, But What Should One Do?

Switching from problems to solutions, what you can do depends on your current relationship with Silicon Valley.

If you’re an American citizen and a voter who cares about Silicon Valley being prosperous in a decade from now – if you have faith in the political system, maybe there is something in the above that you’d like to pick up with your Congressman, Governor, or an NGO like FWD.US. If you lack such faith, you might pick one such problem and try to address it through technology. Some of these issues are informational problems and amenable to such an approach.

If you’re a foreign government dreaming of attracting talent to your own startup hub, stop talking all this nonsense of building “your own Silicon Valley”. Take the laundry list of the weaknesses above and start being 10X better than Silicon Valley in a specific area by changing antiquated e-governance, healthcare, creative arts, education, affordable housing, or immigration rules.

Or, if you already are 10X better, find a way to communicate this advantage to the global community of mobile workers and startup entrepreneurs. We’re heading for a world where all governments will be competing for every citizen. The places that win the front line techies are positioned to win anyone else down the line.

If you’re among the international 95% of amazing software developers and product designers, there is probably an implicit suggestion in this piece that Silicon Valley is your dream, but try to avoid crossing the bridge that takes you here alone. Have someone invite you.

Many of these issues become someone else’s problem when you’re heavily recruited and handled by a human resources team at an influential tech corporation. Lone founders will envy you for having someone sponsor your visas and write checks for hotels during transition. It might well be worth to a few years of service at a “stable” corporation for that, before you get in the startup game. Which means a whole bunch of startups are going to be born somewhere else, by founders who don’t want to settle for a salary job first.

And for the international founders who keep pondering if they should come to Silicon Valley or pick one of the other 100 startup hubs on Earth to win, you have three basic choices:

Option 1:Forget about Silicon Valley.

Save the ticket money, and pick your own hub for success. Just look at Atomico’s Unicorn research: a full 61% of billion dollar tech companies come from outside the Valley. Why can’t you?

This is a scenario reserved mostly for startups who don’t build software businesses or don’t care about the US as a market for their products. Of course, as software eats the world, you can argue every company would benefit from some Silicon Valley network connections as they grow, but they can still time the development of a physical presence.

The US is not the top market for internet usage any more and competition is increasing. Europe has it’s own 580M clients to serve in an increasingly borderless digital market. Chinese e-commerce Unicorns, or African feature phone based mobile payment providers show how companies can grow without being in the US.

As I wrote about Silicon Valley vs Europe last year, too many founders can’t even verbalize what is it that they need from the Valley. It probably makes sense to stay put before you know what you want to achieve.

Option 2:Move to Silicon Valley nevertheless.

Sure, come for all the good things just be conscious of and prepared to spend real time & money on all the unpleasantries enumerated above. You can’t just brush off the hassles and pretend they don’t exist. The downside of Silicon Valley will potentially take more than 25% of your waking hours or 50% of your seed funding.

As a founder it’s your call if your nascent startup can survive those distractions. As a person (or family) you can turn to software to optimize where you live, buty it’s your call if you can manage frugally enough..

Option 3:Design your startup for multi-site/remote work

As the structural issues of Silicon Valley intensify, I predict a mixed model of operating internationally will become a much more widespread practice among startups. That’s eventually the only way to solve the early stage startup paradox: you can’t afford to be in the Valley, but you can’t afford to not be in the Valley either.

Startups should be in the Valley to network, raise money, meet partners, get incubated or accelerated. Personally, I would never trade my studies at Stanford or EIR period at Andreessen Horowitz for anything. Silicon Valley is the perfect place to learn from the best for any entrepreneur.

Startups with global ambitions need to accept that there is no single best place in the world to win, not even the almighty Silicon Valley. If you learn this early on you have the advantage of building your culture, your processes and systems to be able to handle the fluid, distributed and mobile work to come.